What Is A Shelf Agreement

If a company is not allowed to use the S-3 form, it can file a resale shelf registration return with form S-1. However, updating a resale shelf registration statement on the S-1 form is much longer and more expensive than with the S-3 form. This is because Form S-1 does not authorize reuse by referring to a company`s 1934 act reports. As a result, an entity should constantly update a resale registration statement on Form S-1 by submitting prospectus supplements and retrospective changes to reflect key developments and updated financial information. A universal statement of shelf registration contains a basic prospectus that often contains a single section listing the documents taken by reference, a brief overview of the business, an overview of the distribution plan, a brief description of the expected use of the proceeds from the sale of the securities and, in general, a general description of any type of warranty that is recorded. The basic prospectus does not contain information on the prices of a given transaction. This additional information is included in a prospectus supplement filed with the SEC in the event of a takedown. For example, a prospectus premium filed for bond support, the totality of the principal offered, the price of the public offering, possible rebates and commissions, a detailed description of the terms of the securities (including interest rate, interest payment date and maturity date) and a more detailed description of the distribution plan are disclosed. As a general rule, companies agree to maintain their valid registration statements for the resale shelf (i.e.

the prospectus is updated and shareholders are allowed to sell after the registration statement), usually until the shares become freely transferable under Rule 144 under the 1933 Act. (We discuss Rule 144 in Chapter 4. In this way, holders of restricted securities may have some control over the date of their resale. A company would then file a change to the registration statement to disconnect all remaining unsold securities, ending the effectiveness of that registration statement.